After Years of Using Full-Cost Pricing in a Niche Market

question 175

Multiple Choice

After years of using full-cost pricing in a niche market for luxury watches,you find your competition has slowly increased its market share each year with discounted prices.Focus groups have confirmed that the image of your watches is still one of success and prestige,but more people are willing to consider substitutes.Incremental cost-pricing could enable you to increase profits and unsettle your competitor's complacency.You know that changing to incremental-cost pricing does have a significant downside problem.But you are also aware that you can prevent that from happening. ​
​What is the downside problem and which solution can you take to prevent its happening?

• A)​downside is running out of product. solution is to ramp up your production capacity to meet the demand of customers wanting lower prices
• B)​downside is lack of audience awareness. solution is to create high-energy ads to appeal to young customers
• C)​downside is the tax consequences. solution is to tell the CEO that a change in your pricing strategy could lead to an IRS audit
• D)​downside is that the whole market could change. solution is to accept the fact that the wholesale and retail prices of used watches could drop markedly
• E)​downside is losing your niche market. solution is to take solid measures to isolate your markets for lower-priced watches from your higher-priced models

Understand the concepts of explicit and implicit costs and their role in production.

Differentiate between economic profit and accounting profit, including the inclusion of opportunity costs.

Recognize the opportunity cost of capital as a key concept in investment decisions for maintaining a firm's capital assets.

Interpret the significance of economic profit and how it differs from accounting profit in business analysis.

---

Definitions:

Training Session

A period of instruction or practice aimed at enhancing the skills, knowledge, or performance of individuals or groups.

Multiple Facilities

Organizations or establishments having several physical locations or amenities designed for specific functions or services.

Webinars

Online seminars that allow for interactive participation and are designed to educate or inform a remote audience.

Telepresence

Technology that allows a person to feel as if they are present, to give the appearance of being present, or to have an effect, at a location other than their own.